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2014: The Year of Corruption

One theme I’m planning to explore further in my posts this year is corruption in Latin America, and the pervasive effects it has on development, economic growth and overall governance.

So in a region so plagued with corruption in public works, services, law enforcement, and well just about everywhere, what makes 2014 special?

Well, not unlike the way that Vladimir Putin is doing a light dusting of its political house in Russia ahead of Sochi later this year, the two largest countries in the region will be under the microscope of global attention this year, and it’s hard to escape the cold, hard scrutiny of international media and a 24/7 news cycle.

With the World Cup set to start in a few months in Brazil, alongside the PEMEX and broader energy reform taking hold in Mexico, 2014 will be the year when Latin America will show the world if it’s ready for the big time.

In Brazil, two sets of events will bring corruption to the fore. First, as the country rushes to finish the infrastructure necessary to host this year’s World Cup, serious cracks and fissures are emerging in the government’s strategy to procure, finance and finish serious public works. From the hard truths of stadium structures collapsing in São Paulo to sensationalistic reports about Cup-goers booking rooms in favelas due to lack of hotel inventory, the way the World Cup is executed will bolster or detract from Brazil’s country image for years to come. Add this to the surprising protest movement of 2013, with shows little sign of abating in an election year, and 2014 looks like a very uncertain time.

In a country where inflation is making the poor poorer, where there are chronic shortages of doctors and nurses, and where infrastructure is laughably basic at times, the World Cup is burning through vast amounts of money, with all six new-build stadiums behind schedule and federal prosecutors seeking injunctions to block the use of further public funds to pay for the delays.

If I were a betting man, I would wager that a lot of this has to do with Brazil’s byzantine public contracting laws, preventing non-connected and foreign companies from having a meaningful role in procurement except vis-a-vis a rent-seeking Brazilian establishment partner.

My prediction, one I have heard repeated elsewhere at home and in Brazil, is that the country will come up short in the race to build even the most basic of infrastructure necessary for the event (stadiums and access). The president will then issue an emergency decree allowing foreign and non-approved companies to enter into the market to complete the works shoddily ahead of the deadline, and reap huge profits in the process.

And, as ever, corruption will be in large part to blame.

Turning to Mexico, where Enrique Peña Nieto has made the brave political move to reform and modernize the country’s sagging energy sector, the issue of corruption is far less visible but no less present. There are three stages of activity to watch in 2014 to determine whether or not the reform is as above board as one can hope for the oil industry in Mexico (it’s not Norway, after all)

First, in the current process of shaping the nature of the reform bill and getting to exacting language, keep your eyes peeled for strange provisions that favor local oil entities that are yet to be established or are in their infancy (they’ll have already been handed out).

Second, once the bill language is clear, observers will be closely watching how existing relationships with international oil companies play out and whether other state-owned oil companies from less transparent jurisdictions (here’s looking at you Persian Gulf and Asia) enter the fray.

Last, and certainly not least, keep watch on the public revenue targets of the reform, and how the division of future oil wealth will be divided. Will the government scare investors away like Brazil did with the pre-sal social investment goals? Or will the friendly regime mean less for the public purse, more for private developers, and an inevitable kickback to those slicing the pie?

So no conclusions yet, it is only day two of the new year, but lots of questions around what this year means for Latin America’s public image on fundamental issues like economic transparency and governance.

My hope is that we’ll ring in 2015 knowing the answers but my fear is that the year ahead will present even more questions.